GBP Holds Modest Gains Against Softening USD

The British Pound (GBP) has started the week on a modest note against the US Dollar (USD), reversing some of Friday's heavy losses. However, prices are still trading below the mid-1.3500s during the Asian session, indicating a lack of bullish conviction.

The USD has paused its strong move up to a nearly two-week high, which was triggered by month-end rebalancing and acts as a tailwind for the GBP/USD pair. The British Pound draws support from UK Chancellor John Healey's emphasis on maintaining fiscal discipline ahead of the Autumn Budget on October 28.

Traders have pushed back expectations for the next Bank of England (BoE) rate hike into 2027, while US Federal Reserve Chair Kevin Warsh's comments lifted market bets for a September rate hike. The risk of a fresh escalation of tensions between the US and Iran also limits losses for the safe-haven buck.

This week's key focus will be on important US macro releases, including the Nonfarm Payrolls (NFP) report on Friday. The fundamental backdrop suggests that the path of least resistance for the USD is to the upside, warranting caution before placing bullish bets on the GBP/USD pair.